How to Calculate Prepared Food Sales Percentages

Example 1

Tiny Town Theater operates a concession stand at their theater. The concession stand has utensils on the
couner for the customers to use (i.e. napkins, lids, plastic ware, straws,
etc.).

In 2007, Tiny Town Theater made the following sales:

Hot dogs

$25,000

Popcorn

$30,000

Fountain drinks

$30,000

Candy bars

$5,000

Other candy

$10,000

Nachos

$15,000

Bottled water

$2,000

Bottled juice (more than 50 percent juice)

$2,000

Sealed soft drinks (pop)

$5,000

Sealed beverages containing milk (i.e. cold coffee drinks)

$1,000

Coffee

$2,500

Potato chips

$2,000

Milk

$1,000

Fruit

$1,000

Cheesecake (single servings on a plate, made by a local
bakery, not the theater)

$500

Mr. Jones, the bookkeeper, is preparing the annual calculation
to determine whether sales of prepared foods make up more than 75 percent of
the theater’s annual sales of food and food ingredients. Here is his
calculation:

Step 1

Calculate the Numerator

Numerator: The
numerator includes the following items (items are to be counted only once in
the numerator, even if they qualify under more than one
classification):

1. All foods sold in a heated state:

Hot dogs

$25,000

Popcorn

$30,000

Nachos

$15,000

Coffee

$2,500

2. Combined foods (all foods where the seller combines two
or more ingredients)

Step 2

Calculate the Denominator

Denominator: The denominator includes food, food ingredients, prepared food,
soft drinks, and dietary supplements. (Items are to be counted only once in the
denominator, even if they qualify under more than one classification):

1. Food includes:

Hot dogs

$25,000

Pop corn

$30,000

Candy bars

$5,000

Other candy

$10,000

Nachos

$15,000

Bottled water

$2,000

Bottled juice (more than 50% juice)

$2,000

Sealed beverages containing milk

$1,000

Coffee

$2,500

Potato chips

$2,000

Milk

$1,000

Fruit

$1,000

Cheese cake (served on a plate)

$500

2. Food ingredients:

The theater does not separately sell any items that are
classified as food ingredients.

3. Soft drinks include:

Fountain drinks

$30,000

Sealed soft drinks

$5,000

4. Dietary supplements:

The theater does not sell any items that are classified as
dietary supplements.

The total for the denominator would be $132,000 ($97,000 food items, + $35,000 soft drinks).

Step 3

Calculate the Percentage

The percentage of prepared food sales is determined by
dividing the numerator (n) by the denominator (d). In
this example the calculation would be:

n
d

=

$103,000$132,000

= .780 or 78%

Step 4

Determination

Tiny Town Theater’s percentage of prepared food sales in 2007
was greater than 75 percent. Therefore, they are classified as predominately
selling prepared food. During 2008 the Tiny Town Theater is required to collect
retail sales tax on all sales of food items. This includes items that were not
previously subject to retail sales tax:

candy bars

other candy

bottled
water

bottled juice

sealed beverages containing milk

potato chips

milk

fruit

After 2008, Tiny Town Theater is required to recalculate their
percentage of prepared food sales annually. If the sales remain above 75
percent, they are required to continue to collect retail sales tax on all food
items. If their prepared food sales drop below 75 percent then they may
segregate their sales and only collect retail sales tax on those items which do
not qualify for the food and food ingredients exemption. In this example, the
following items would remain subject to retail sales tax:

hot dogs

popcorn

fountain drinks

nachos

sealed soft drinks

coffee

cheesecake

However, the following items would be exempt from retail sales
tax, if the sales are properly segregated: